Thursday, July 21, 2005

The Ny Times has a fascinating article on Costco. It's the kind of good advertising you just can't buy. Here's an extended quote:

Some Wall Street analysts assert that Mr. Sinegal [CEO of Costco] is overly generous not only to Costco's customers but to its workers as well. Costco's average pay, for example, is $17 an hour, 42 percent higher than its fiercest rival, Sam's Club. And Costco's health plan makes those at many other retailers look Scroogish. One analyst, Bill Dreher of Deutsche Bank, complained last year that at Costco "it's better to be an employee or a customer than a shareholder."

Good wages and benefits are why Costco has extremely low rates of turnover and theft by employees, [Mr. Sinegal] said. And Costco's customers, who are more affluent than other warehouse store shoppers, stay loyal because they like that low prices do not come at the workers' expense. "This is not altruistic," he said. "This is good business."

...Eighty-five percent of Costco's workers have health insurance, compared with less than half at Wal-Mart and Target. Costco also has not shut out unions, as some of its rivals have. The Teamsters union, for example, represents 14,000 of Costco's 113,000 employees. "They gave us the best agreement of any retailer in the country," said Rome Aloise, the union's chief negotiator with Costco. The contract guarantees employees at least 25 hours of work a week, he said, and requires that at least half of a store's workers be full time.

Why is Costco playing nicer than the other kids? Is it a good strategy, or a personal choice on the part of the CEO? Of course, Costco jobs still aren't that great, and while the CEO earns "only" $350,000 per year, his stock options are currently worth upwards of $150 million. It's inspiring to know, however, that even in the world of discount retail, Walmart's race to the bottom isn't the only way to win. I'll end with my favorite quote from the article:

There is little love lost between Wal-Mart and Costco. Wal-Mart, for example, boasts that its Sam's Club division has the lowest prices of any retailer. Mr. Sinegal emphatically dismissed that assertion with a one-word barnyard epithet.

64 comments:

Anonymous
said...

I think it is amazingly appropriate that you bring up Wal Mart right after I posted about Chinese currency revaluations.

I heard on NPR that investigations of Nike plants in China showed conditions to be "not unpleasant." But that plants producing for Wal Mart were sweat shops. Also the owners of the plants producig for Wal Mart have very low profit margins because Wal Mart screws them too.

Where government regulators will not prevent companies from competing on the score of who can treat the workforce the worst, it is our duty to vote with our dollars and be informed. The sad thing is that a cadre of informed consumers will never be close to what a little bit of governmental action could do (e.g., prohibit imports from sweatshops).

If anyone knows of an organization that already rates retailers on the sources of their products, please post it.

The law firm I used to work for was tangentially involved with the supermarket strike in Southern California in 03-04, representing the UFCW. As you might recall, the unions were striking Vons, Albertsons, and Ralph's stores. Those on the picket lines told people to shop at Stater Bros (a union store that had decided to sign a "me too" agreement, allowing it's employees to continue working), Costco, and other stores. There were many people who ended up shopping at Costco, as well as Trader Joes and Sam's Club. In fact, all three had tremendous increases in business during the strike. What we found once the strike ended, is that the only store to retain that increase in business was Costco. Indeed, the UFCW has since found it infinitely easier to organize Costco. I think what you will also find in the next few years is a slow defection from Ralphs, Vons, and Albertsons of skilled workers such as butchers as the impact of the two-tiered contract signed between the stores and the union becomes evident. Remember, that for all intents and purposes, the union LOST the fight, allowing those stores to cut costs on the new employees (wages, benefits, and hours) which will ultimately squeeze out the older, more expensive workers on the first tier.

A note about butchers: anyone who has bought costco meat and compared it to supermarket meat will probably notice the difference instantly. Better aged, better flavor, nicer cuts, better meat in every way. Smaller stores with butchers produce the same thing. There is a skill to being a butcher - just cutting meat and wrapping it in cellophane is not sufficient. Similarly, I can shop at small ethnic grocery stores and buy vegetables at 1/3 the price of the supermarkets (no joke), which are of better quality. The supermarkets specialize in pretty food: red-looking meat and ripe-looking tomatoes, the product of dyes and chemicals. Got no problem with dyes and chemicals (I'm no organic freak), but they don't make food taste better.

I just wonder what the future is for supermarkets, outside of suburbs where they have a monopoly.

As an employee of Costco, a butcher to boot, I can honestly say that their treatment of employees, and members is second to none. I am a 10 yearr employee and heve five members of my family working in three warehouses. As a butcher, I will say that the meat is honestly the best, never dyed or tainted to fool anyone, it is pure beef, pork, and fresh fish and chicken. Givie the best to product for the best price and wou will have repeat business, fool someone once, you will never get their trust back. As an insider, Costco is a great place to work and shop.

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